* Asian stock markets : tmsnrt.rs/2zpUAr4
* MSCI ex-Japan down 0.2%; Nikkei falls 0.7%
* U.S. President Trump says he had to ‘take China on’
* Eyes on Fed minutes, Jackson Hole meeting
SYDNEY, Aug 21 (Reuters) - Asian shares fell on Wednesday as fresh worries about a global recession led investors to dump risky assets, with U.S. President Donald Trump showing no signs of backing down in his trade war with China.
Trump said on Tuesday he had to confront China over trade even if it caused short-term harm to the U.S. economy because Beijing had been cheating Washington for decades.
His strongly worded remarks came hours before his government announced approval of an $8 billion sale of Lockheed Martin F-16 fighter jets to Taiwan, a move sure to draw Beijing’s ire and further dim prospects for a quick trade deal.
MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2%, snapping three straight days of gains.
Japan’s Nikkei slipped 0.6%, Australian shares were 0.8% lower and South Korea’s KOSPI index was a shade weaker.
On Wall Street, the Dow and the Nasdaq fell 0.7% each while the S&P 500 lost 0.8%.
Some analysts expect a further correction in world shares, which are still above their December lows.
Aside from the trade war, political turmoil in Hong Kong, Britain and Italy have also heightened uncertainties for investors. The prospect of new elections in Italy after the resignation of Prime Minister Giuseppe Conte added to jitters, sending Italian sovereign bond yields sliding.
The key for markets now is whether pledges for more accommodative policy from Germany to China are enough to assuage concerns about the state of the global economy and end fears of recession.
The immediate focus shifts to the minutes of the Fed’s most recent meeting, due on Wednesday. Traders are also awaiting the central bank’s Jackson Hole seminar later this week and a Group of Seven summit this weekend for clues on what additional steps policymakers will take to boost economic growth.
Morgan Stanley economist Ellen Zentner advised clients to watch for the use of the word “somewhat” when Fed Chair Powell describes further policy adjustments.
“Acknowledgment that downside risks have increased with no characterisation of ‘somewhat’ could be taken as confirmation that it is likely the Fed makes a larger cut in September,” Zentner wrote in a note.
Investors are pricing in a 16% chance of a 50 basis point cut to U.S. Fed funds rate in September.
Alarm bells started ringing last week when U.S. 2-year yields traded above those of their 10-year counterparts for the first time since 2007, an inversion that has presaged previous recessions and is widely watched by markets.
Most fund managers and economists expect global policy stimulus to prevent the world from tipping into recession. Supporting that belief, Reuters reported earlier Trump and his advisers are examining ways to provide a boost to the U.S. economy should it be deemed necessary.
In addition, the central banks of the euro zone, Australia and China are all expected step open the monetary spigot further this year while Germany is considering fiscal stimulus.
Those prospects have driven yields lower. Benchmark U.S. 10-year Treasuries rose on Tuesday to yield 1.540% from a high of 1.625% on Monday.
However, currency markets were mostly subdued ahead of the Jackson Hole meeting and Fed minutes. The Japanese yen was little changed at 106.24 per dollar after firming 0.4% versus the greenback on Tuesday, while sterling was last trading at $1.2162.
The euro trod water near Tuesday’s high of $1.1101.
The dollar index was on the defensive as it drifted away from a three-week top touched earlier on Monday. It was last flat at 98.208.
In commodities markets, U.S. crude dipped 2 cents to $56.11 per barrel while Brent added 5 cents to $60.08.
Spot gold was a shade weaker at $1,506.14 an ounce.
Editing by Sam Holmes